12 Improvements That Didn’t Pay: Learn From These Rehab Mistakes

Two weeks ago I wrote a warning about over-improving and last week I told you about a house that I over-improved. I went long last week and I didn’t get to share any numbers with you. This particular flip was unique because there was another rehab home just around the corner from mine. It was the exact same model home and similar lot. It went on the market just about a week before mine. In my post project analysis it was easy to compare and contrast my home with this other rehab and identify my mistakes.

Here are the Big 12 ill Advised Home Improvements I Made

Shower Jets: $1,600 – We didn’t have room to put a jetted tub in the master bath. So I had the bright idea to install shower jets instead.

Marble Tile: $800 – We decided that we wanted to give the master bathroom a little sizzle. So we decided to go with full marble tile floor and surround. It cost us about $800 more that the original ceramic tile quote.

Slate Sidewalk and Porch: $4,600 – Landscaping is always risky. We wanted to really give the house some curb appeal. It did look nice. I wouldn’t do it again.

Sidewalk Removal: $950 – There was a cement walkway right down the middle of the yard. We didn’t like how it cut the yard in two. We had it removed.

Redo the Path at the Side of the House: $800 – I won’t take any credit for this one. My partner got fixated on the side of the house. I told him to breath and let it go but when I came back from a trip I found that he’d ordered a new concrete path and grass in this area. The $800 is just the sidewalk.

Retaining wall: $1,600 – This did look really nice. In the backyard we had a walk out basement that was covered by a large deck. My partner wanted to beautify this area. I just wanted to clean it up. We compromised with a dry river bed and a small retaining wall. If I had to do it again it would have just done the dry river bed it only cost a few hundred dollars.

Hot Tub: $3,500 – Boy did I get a deal on this hot tub. It had like 500 jets or something. It turns out that there is a factory that builds them just a few hours from here. I got this one directly from the manufacturer; it probably would have cost like $6,000 retail. It didn’t really matter though because (even thought the hot tub was built into the deck) the appraiser gave us zero credit for it. Hot tubs are always very risky moves. I knew the risk. I did it anyways. I lost. And, this was all my doing. I can’t blame this bright idea on anyone.

Gazebo for the hot tub: $1,700 – Need I say more? We’ll keep this as a part of the hot tub . . .

Exterior Paint: $3,800 – The house was brick. There was nothing wrong with the brick. We just wanted to give the house a richer look. The comparison house had the exact same brick. They didn’t paint it. The appraiser gave us zero credit for the paint of course because it’s a taste thing.

Jenn Air Appliances: $3,000 – Top of the line stainless steel appliances. The total package cost us somewhere around seven grand. That is easily $3,000 more than a good GE stainless steel package would have cost us. The GE stuff would have done just as well.

Top of the line custom Cabinets: $14,000 – The comparable home had mid-grade cabinets at best. The appraiser gave us no credit for the extra expense. My cabinet guy could have done a very nice kitchen for about half this cost. I figure this move cost me about $7,000.

Granite countertops for the bathrooms: $1,200 – I don’t think this needs explaining.

French Door in the Dining Room: $1500 – We took out a big picture window and added a French door to the patio from the dining room. It looked nice but the comps didn’t have this door. The appraiser of course gave us no credit for it.

Conclusions

This gives a grand total of approximately $32,050.00 of over improvements. It hurts because at the beginning of the project we had considered just selling the home as is (no improvement.) I’m certain that if we would have skipped the improvements and just sold it in the same condition that we bought it, then we would have made about $30,000 more than what we made after putting in all the extra work.

Our buyers didn’t even say thank you for all of the free stuff! In fact, they still made me come back and fix the light post and a couple other little handyman items. The vast majority of people have no idea of how much cost and effort these improvements take. If you want to get into real estate (any field of residential real estate) you had better get educated. These mistakes I listed here could have bought me a year at a pretty nice college.

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About Author

Justin’s work ethics and values are based on his small town western upbringing and eight years of active duty in the United States Marine Corps. He currently resides in the D.C. area. He holds a BA in Management, a Masters in Business Administration and an active Virginia Real Estate Agent license.

18 Comments

Woww, Congratulation for your new home look 🙂
$32,050.00 is a lot in my country, with the same price I can buy a brand new house.
Reading your post is very interesting, I wish you upload some pictures and let us see your home after the improvements 🙂

Thanks for being brave enough to share this with everyone, Justin. It would behoove any rehabber to bookmark this article and read it before each project as a reminder to be careful not to go overboard!

Justin, great post and so important for people to see! I found this line very interesting “Our buyers didn’t even say thank you for all of the free stuff!”…that is SOOO true! You can do so much less and satisfy buyers…plus like you said the appraisers often don’t give you credit for the improvements so all I can say is “Amen!” to all of this because I’ve been there!
.-= Shae Bynes´s last blog ..An Attitude of Gratitude =-.

I wouldn’t call this home high end. In Fairfax county its abouit midgrade. That was part of my mistake. Even though I’ve been in this area for almost 15 years I still sometimes let my small-town way of thinking over power me. Of course that small-town way of thinking has also saved me a few times, give and take… I guess.

Thanks, everybody, for all of your comments. Thanks for reading. Happy investing.

If you visit my profile to see more pics of this project they are in the photo galleries section entitled “Before and After Fairfax Project.” I’ll try to get some more posted. I’m really bad at keeping up on this stuff. I have a bunch of stuff I need to post on here and on my website.

Why not start with the appraiser as a consultant on what will and what won’t add value. As far as value for certain things alot of times these values maybe grouped under a general adjustment of quality or condition. How did all this affect the sale price and closing the deal. And most important if you made money in this market you were a major winner for the most part when most sales are a loss.

Justin, at least your still alive to talk about it. So many investors jump into something without doing their homework and don’t survive. Sometimes we learn best from tough learned lessons…you probably won’t be making that mistake again.

Appraisers aren’t oracles. With the new appraisal rules you may get an appraiser who lives hours away. If you ask 10 appraisers you’ll get 10 answers, especially since every question you ask will have 100 shades and variables. Look at the articles I’ve posted on my bigger pockets profile about appraisals. Even the large builders with massive research departments can’t figure out appraisers. There would be nothing to this business if it were as easy as asking an appraiser. I’m not saying don’t do it. You may get some really valuable info especially if you’re new at this, but make sure you have other sources of information.

Yes, I made money. I like doing that. But, I would have made more money by just selling the place without improvements. I’m not crying crock tears here but I do think there’s a lesson to be learned, maybe two. I don’t think you want to get in the habit of shrugging off money in this business. If you’re expecting to loose money then it’s time to hang it up.

No, I’m sure I’ll make similar mistakes again. I just hope the next time it will be less expensive. That’s the thing with this business, if you go too far in any direction it will be very costly. Underimproving can be expensive too.

As an appraiser, I come across a lot of people with similar stories. None of them thought of asking an appraiser if the improvements they were considering were worth doing, considering the neighborhood the house was in. Or a real estate agent familiar with the neighborhood. I’ve always wondered why.

I remember once I decided to finish our first floor. I had some ideas on my mind. I figured out it would cost around $7000. Well, it costed me more, something close to $12000. In my case, the extra cost wasn’t due to fancy material. The reason was I didn’t consider all the details.
Jay